All Forum Posts by: Drew C Grossman

What is the cost to build in your market with land costs, permitting ect?? In my market we can build at 70% ARV or under and meet the 1% rule with cash flow AND have new construction which makes getting tenants and managing so much easier...we also have multiple exit strategies.

Getting a loan from a bank to finance new construction is kind of a pipe dream in this market ....not to say you wont be able to find good terms but I have not come across any for this type of plan and is a lot riskier IMO and gets very expensive....

I think it makes the most sense to consider paying cash or using a line of credit of some sorts and then maybe refinancing when the project is complete? It will be easier to get financing on the completed, rented project than to try and get financing for the construction.

With that being said, if your strategy is DEPENDENT on refinancing or selling out ect.. it adds a layer of risk in a declining market with high rates ect...

What is your goal? Are you trying to flip or rent long term?

0 Votes

Rio Grande Valley, Texas

Hey @Michael Sylver, I like the idea of being university housing as risk is much lower especially if you place the right tenants. Also like the south east

Where are you coming up with 6.6% interest in your proforma? I’m seeing rates closer to 7.5-8.5% for this type of project. Are you planning to buy down the rate? if not, this would really make your cash flow a lot lower than in your number currently

Curious to what your strategy is!

0 Votes

@Jeff Koval have you looked into Central Florida? There’s some pretty solid options between palm coast and Ocala.

1 Vote

Sounds like you are diving into the self storage world lol! ….welcome!

0 Votes

Newark, New Jersey

Quote from @Roman Puzey:

Quote from @Tanner Pile:

Quote from @Roman Puzey:

Quote from @Tanner Pile:

Hi Roman,

I like west of I25 due to the lack of supply in this area. New construction is limited due to the mountains so the value of these properties will have a higher demand as well as people wanting to rent closer to the mountains and downtown.

Another thing to consider is what your price point is and what you're looking for in cash flow.

In Colorado Springs most multifamily properties are on the westside and around the $500k-700k price point on avg. Which can be great if your budget is not able to purchase in a quality area of Denver.

Our price point is 850k, we are looking duplex/quadraplex. Based on that price point, is there any other areas you recommend to look at besides Colorado Springs? We saw quadraplexes in Greely CO for 500k and with price point so low, do you think there is less interest for people to live in that area?

@Roman Puzey

$850k is solid for a purchase price for west Denver. Would you look to do any renovations? or have it rent ready?

I think Fort Collins has more interest to people then Greely for Northern Colorado be cause of Horsetooth Reservoir. I know one person with a Greely rental (small SFH) and it is not doing as well as they had hoped. However, as long as the numbers still work for the area and you budget for vacancy, cap ex, and maintenance it can be a great deal.

So if the property is 850k then we would rather have it be rent ready. If its considerably less (500k-700k), then we would do renovations. We are currently looking for the properties on MLS (to find listings). Does BP offer anything better than MLS?

Hey @Roman Puzey,

Checking in from FL….I come out to Colorado every year and love learning about the real estate when I come for leisure!

My question …financing 700k at 6% is roughly $4,200 then add on another $1,000 a month for insurance and taxes to get you up to $5,200 mortgage payment. Is it feasible in your market to be able to rent out a side for that much money $5,000+ and live for free or significantly offset your living costs?

What am I missing? These numbers would not work in Florida. Curious to see what your financial goal is for this!

0 Votes

Denver, Colorado

Quote from @Chris Farinella:

“More valuable homes are likely to cash flow less, if at all, than lower value homes”

I hear this repeated a lot and haven’t yet heard or found the explanation. I assumed that more valuable homes would simply have much higher debt payments and taxes, but then I’ve seen the concept being talked about while referencing cash deals or various other methods of financing, so it seems the debt isn’t the main factor.

So why is it lower value homes generally cash flow greater than higher value homes?

Hey @Chris Farinella this is a great question.

Let’s start with a basic example …and assume we are paying cash. I’m going to use markets in Florida as an example.

You have a $200,000 house in Central Florida that rents for $2,000 a month..2,000 / 200,000 = 1% a month in gross rents.

You have a $400,000 house in Tampa that rents for $3,000 a month …3,000 / 400,000 = .75% a month in gross rents

You have a $900,000 in St John’s County, Jacksonville that rents for $5,500 a month …5,500 / 900,000 = .61% in gross rents.

Notice that the higher price point you get..the lower the rent / price ratio…making farther away from a 1%+ deal

Let’s assume that in this market taxes and insurance combined is 2% of purchase price per year.

$200,000 x 2% = $4,000
$24,000 yearly rent - $4,000 = $20,000 $20,000 NOI / $200,000 purchase price = 10% cash on cash return.

$400,000 x 2% = $8,000
$36,000 yearly rent - $8,000 = $28,000 $28,000 NOI / $400,000 purchase price = 7% cash on cash return.

$900,000 x 2% = $18,000
$66,000 yearly rent - $18,000 = $48,000 $48,000 NOI / $900,000 purchase price = 5.3% cash on cash return.

**not factoring in PM expense or reserves**

Adding leverage can also boost returns and this example above will hold true with financing when comparing apples to apples cost of capital.

So why is the cash flow less in the higher side of the market? Simple ….for every $100,000 increase in price point the harder it gets to achieve that additional $1,000 in monthly rent. I am speaking very general with a long term rental approach as I know creative / short term rentals can fetch more rent.

Also a majority of the demand for homes at higher price points are people who are owner occupants which buy homes not because it’s an investment but because they need a place to live. This can drive up price …

In most markets you have a balance of appreciation vs cash flow and you are usually sacrificing one for another…however not in all cases as the goal is to find markets with healthy amount of both!

20 Votes

Quote from @Josh Green:

@Travis Nachman

Most metros that are desirable and showing long term, high appreciation rates are going to experience this at one point. Gone are the days here where you can just buy any multifamily or single family and just rent it out for good cash flow. While the barrier to entry has increased, there absolutely is still opportunity here and many people all over the country know that and are actively looking here.

I wouldn't mind hopping on a call next week to discuss your situation and see what can be done 👍🏼

@Josh Green what are you seeing in your market with returns/ strategies? Do you think the St Pete market is more susceptible to further downsize with high interest rate environment since it doesn’t cash flow great? How much would prices have to come down in this market for the investment deals to work again? Obviously the market is different at different price points so I guess this is more of entry level/investment home specific.

@Griffin Pratt curious to hear your thoughts as well

1 Vote

Saint Petersburg, Florida

Quote from @Nicholas L.:

@Matthew Banks

as others have said, you're in a great position. there's no need to rush. and i would strongly encourage you not to use hard money or something else non-conventional on your first deal.

wait, save, house hack, repeat.

Agreed

1 Vote

Quote from @Jack Seiden:

Quote from @Matthew Banks:

Hi everyone - I'm about to start my first job after college (in the DC area) and have recently started to learn about real estate investing as a side project. I'm curious as to what % of my income I should look to set aside for a down payment. I'll be making ~$30k above median income for my city next year and would really like to pull the trigger on something within the next 12 months once I learn more. I'm looking into buy and hold properties but not sure what niche is most appropriate yet for my area and situation.

In addition, is it typically common for newbies to outsource property management? Or is this something that's not really affordable until later on in the game? Ideally I would like to be as hands off as possible, is this unrealistic for someone just starting out? Thanks a bunch and I'd really appreciate any advice/tidbits.

The down payment percentage really depends on your lifestyle/wants. On owner occupied residences you can put down as little as 3.5% (sometimes will seller subsidy’s and certain loan programs it can be effectively less than that.) however with rates above 6 generally I recommend people try to put around 10% down to keep their payment reasonable. As far as property management I manage all my own properties and it takes me literally less than an hour a month, almost all property management is calling people to fix things when the break. One time I even made a service call from my bed lol. Feel free to reach out if you have any another questions!

I would be lying if I said I haven’t done the same thing with making a service call from my bed lol…I also self manage and although I do agree that a big part of property management is service call related…but a great PM will go the extra mile when placing tenants, upkeep of the property, organization with financials ect…

1 Vote

All Forum Posts by: Drew C Grossman

Drew C Grossman has started 5 posts and replied 128 times.

Post: 1st fix and flip with zero out of pocket money

Post: Buy or build rental properties

Post: [Calc Review] Help me analyze this deal

Post: A bit stuck, looking for a partner

Post: lease agreement for garage

Post: What are good locations to buy a duplex in Denver area?

Post: Trouble Grasping This Concept:

Post: Investing in areas with low rent to price ratios

Post: Recent Post-Grad Starting Out

Post: Recent Post-Grad Starting Out